Cognizant 20-20 Insights

Achieving Transformational Results from Policy Administration

Insurers can dramatically improve results from policy administration investments by taking a more scientific approach to legacy modernization and focusing on the impact to customers, advisors and employees.
Executive Summary
As unlikely as it may sound, updating policy administration isnt about IT modernization. Its about connecting complex policy administration systems to business outcomes such as revenue lift and customer retention. At the heart of that crucial link and central to insurers investments in new policy administration systems is legacy system conversions. But choosing which legacy systems to keep and which to jettison has savaged more than a few IT efforts. Decision-making has been haphazard, and tools have not been deployed to aid in analysis. The insurance industry has struggled with these challenges until now. Instead of a Big Bang approach, insurers are making smaller, more targeted investments to transform policy administration. Equally important, they now have the opportunity to apply science to legacy conversion decisions with a scoring system we call Cognizant Platform Conversion Score (PCS). PCS provides a comprehensive framework to evaluate older systems usefulness. It enables organizations to take a more thorough and less risky approach to legacy conversion, removing the guesswork from legacy assessment. This white paper identifies ways for insurers to utilize PCS to infuse rigor into policy administration modernization efforts and achieve, if not exceed, business objectives.

History of Unsuccessful Projects

Insurers first steps toward policy administration were indeed about modernization. In general, property and casualty insurers have moved more quickly than life and annuity focused insurers in modernizing their policy systems. But efforts by carriers in both sectors followed the same path: consolidate sprawling technology systems, sunset systems deemed too costly to maintain and invest in new technology to aid growth and efficiency. The results of insurers policy administration upgrades have been mixed. Approximately half of these efforts experienced cost and schedule overruns and failed to fulfill the original benefit requirements, according to research by PricewaterhouseCoopers.1 Another third were abandoned or canceled after falling short

Cognizant 20-20 Insights | august 2013

of expected costs, schedules or customer expectations. But interest remains intense. One-third of insurers have new policy administration systems underway or planned, according to research advisory firm Novarica.2 Research firm Celent counts 130 new policy administration initiatives kicking off next year alone.3

Metrics. Use metrics to determine whether the changes are working and to measure constituent awareness and impact. How can your organization quantify whether the policy administration initiatives are producing changes that enable the business to run differently and better?

Targeting the Right Factors

What makes for successful policy administration change? Typical drivers are IT and operational cost savings, most often in terms of consolidating hardware and software Insurers that licenses and having fewer think exclusively systems to support. Therein in terms of cost lies the problem: Insurers that think exclusively in savings narrow terms of cost savings nartheir field of view. row their field of view. Make no mistake that lower costs and technical achievements such as straight-through processing are desirable, as is a mobile-enabled front end, for example. But getting the technology right is only part of policy administration. A more important metric for insurers is whether the changes truly impact customers or producers and generate noticeable outcomes, such as revenue lift, increased policy retention and new sales channels. This is the difference between policy administration modernization and transformation. To be transformative, policy administration improvements need to consider three factors: Market objectives. Identify what changes will result from the proposed project. That is, how will modernizing policy administration enable your organization to run differently? How will it ensure that your operations run better? What financial impact will the initiative have? Too many policy administration projects are IT-only. Think more expansively.

We helped a leading insurance and financial services company transform its approach to policy administration by aligning its initiative with these three factors, resulting in noticeable benefits to both policyholders and the business (see sidebar).

Making Better Legacy Decisions

Although legacy conversion is central to transforming policy administration, insurers that support a sprawling maze of outdated systems often find it challenging to prioritize conversion. Legacy systems are the icebergs of IT: The complexity and magnitude of conversion projects are at first largely unseen. What is needed is a more rigorous and scientific approach to legacy conversion evaluations, whether the goal is tightening IT budgets or planning policy administration overhauls. Cognizant PCS provides a framework for making more informed decisions. It measures the risk of converting each legacy policy platform and helps facilitate a broader dialogue between business and IT stakeholders to improve decision making. It standardizes conversion decisions, similar to the way the FICO score is used to assess consumer credit. As with the FICO system, the higher the PCS score, the lower the risk. A key distinction for PCS is that it provides the weighted score of every functions participation. Too many conversions begin in the finance and IT departments and then work their way outward through the organization. PCS drives participation from all constituents right from the beginning, ensuring that the opinions of finance and operations are considered, as well as those of IT. PCS measures four essential dimensions of insurers legacy systems: Revenue opportunity. The greater the revenue opportunity, the more challenging the move. Estimate the legacy systems revenue potential by calculating the annual premium to be gained, as well as the policy

Key constituents. Focus on the beneficiaries of transformation. Will the new system be obvious to your customers? Will it help agents and advisors run their businesses better? Maybe its goal is to empower employees to serve customers and advisors more effectively and to distinguish the carrier from competitors. Successful policy transformation programs have clearly defined the benefits for customers, agents and employees.

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count and potential retention rate. How well is this legacy system being served in a multichannel environment?

adequately provided? How easy is it to port the business rules, and how easily can the data be extracted and moved? The PCSs base score is Legacy systems then adjusted by calculatare the icebergs of ing business and technology experience coeffi- IT: The complexity cients. Business experience and magnitude of coefficients include service conversion projects disruption, operation and actuarial bench strength, are at first largely tax and legal exposure, unseen. and training time. Key coefficients for IT experience include the bench strength of source and target platforms; staff skills for data mapping, modeling and extraction;

Cost of realizing revenue. How often and how complex will service interaction be? How will agents or advisors be involved? Product considerations. How extensive are the product variations? Is the products design easy to replicate? How well can your organization map the product to a new platform? What are the contractual and historical amendments? Are there complex riders attached? Technical feasibility. Does your staff possess the skills needed to execute? Can support be

Quick Take
Leading Insurer Corrects Course to Transformation with Smaller, More Targeted Investments
For one of the U.S.s leading insurance and financial services companies, fast growth had bred too many legacy systems. Through a string of acquisitions, the insurer had grown by several hundred percent, eventually reaching more than one million active policies sold through an independent field force of direct marketers and independent brokers. Behind the scenes, the company juggled 6,000 product variations on 14 platforms. In need of a system to process new business more efficiently, the insurer developed elaborate business requirements in hopes of converting its legacy systems, handling all product variations, managing policies and improving its employee and customer experience. Tens of millions of dollars and 18 months later, the results of the overhaul fell far short of the vision. While the insurer successfully implemented a new system to issue term life policies, it continued to run the old one, effectively adding to, not reducing, its support burden. The insurers experience is common. Half of IT projects with price tags exceeding $15 million massively blow their budget, according to McKinsey in its review of 5,400 IT projects with the University of Oxford.4 On average, complex IT projects run 45% over budget and 7% over time. Worse, they deliver 56% less value than predicted. Software projects run the highest risk of cost and schedule overruns. In the insurers case, it eventually regrouped and moved forward with a decidedly more targeted approach. This time, it made smaller, more strategic investments, selecting initiatives that both mattered to its business and could be measured. It chose to focus on efforts in customer service, client-data consolidation and a Web self-service strategy that lets policyholders pay premiums online. The results were significant. Policyholder satisfaction increased 25% for the first year and consistently outpaced competitors. Call volume dropped 4% a substantial reduction in the one million calls logged annually. Customer service transactions, meanwhile, dropped 2%. By learning from its experience, the company honed a smarter strategy for changing its approach to policy administration and produced genuine results. Further, the client will apply the PCS framework to improve its future decisions on converting any remaining legacy policy administration systems.

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Cognizant Platform Conversion Score Worksheet

Dimension Revenue Opportunity Annual premium Policy count and retention rate Cost of Revenue + Frequency of interaction + Service preference of policyholders + Producer business activity factor Technical Feasibility Identification of additional business rules Complexity of data extraction and transformation Product Considerations Number of product variations Product design replication Contractual and historical amendments Base Score Business Confidence Coefficient (01) IT Confidence Coefficient (01) Final Score (Base Score * Sum of coefficients) Maximum Score 100 Actual Score 50

150

125

150

125

100 500 1 1 1,000 Score < 400: Dont convert

75 375 1 0.75

656
Convert

Score > 600: Convert

Figure 1

Score 400600: Possibly convert; select blocks

and the ability to shield legacy changes by implementing a front-end system. Figure 1 provides an example of a scorecard generated by a client that used PCS to evaluate its policy platforms. The scorecard provided additional context to help inform a decision on conversion risk and also boost confidence in the decision.

Looking Forward
It is abundantly clear that carriers unsuccessful efforts to improve policy administration have helped increase their certainty about what does work. In addition, a new generation of tools and technologies can better prepare carriers for the rigors of large, complex systems. Your organization can improve its cost structure and overhaul its operations through a disciplined two-step approach that first aligns market objectives, key constituents and metrics, and then

applies a comprehensive Carriers framework to making legacy conversion decisions. unsuccessful Cognizant PCS can provide efforts to a rigorous, scientific scoreimprove policy card that measures how well your legacy systems administration are working for your com- have helped pany. The results are clear: increase their A more informed approach to policy administration and certainty about legacy conversion can gen- what does work. erate business benefits and help carriers achieve their market objectives by dramatically improving customer, advisor and employee experiences. By thinking more broadly about policy administration investments, insurers can gain more confidence in the investment returns.

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Footnotes
1

Eyes on the Prize: Implementing Fast, Flexible Policy Administration Systems in the P&C Insurance Sector, FS Viewpoint, PricewaterhouseCoopers, April 2013. New Novarica Report on Insurance Policy Administration Systems Helps Insurers Navigate a Complex Market of More Than 80 Vendors, Novarica press release, May 24, 2012.

2013 North America Insurance CIO Survey: Pressures, Priorities and Innovation, Celent, April 25, 2013. Michael Bloch, Sven Blumberg, Jurgen Laarz, Delivering Large-Scale IT Projects on Time, on Budget, and on Value, McKinsey & Co., October 2012.

About the Authors

Kevin Kraft is an Insurance Practice Lead with Cognizant Business Consulting, where he is responsible for the life, annuity and retirement services market teams. Kevin has over 25 years of experience designing and executing growth, customer and distribution strategies for insurance, financial services and healthcare companies. Kevin can be reached at Kevin.Kraft@cognizant.com. Rohit Gupta is a Senior Manager in Cognizants Insurance Business Consulting Practice. Rohit has 15 years of management consulting and IT experience in the insurance industry, where he has advised client senior management on top strategy, operations and technology issues. Rohit can be reached at Rohit.Gupta@cognizant.com.

About Cognizant
Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process outsourcing services, dedicated to helping the worlds leading companies build stronger businesses. Headquartered in Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industry and business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50 delivery centers worldwide and approximately 164,300 employees as of June 30, 2013, Cognizant is a member of the NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performing and fastest growing companies in the world. Visit us online at www.cognizant.com for more information.

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